Mood shifts for one of South Africa’s most important sectors

Sentiment within the manufacturing sector has improved, but business activity still remains subdued.

ABSA’s Purchasing Managers’ Index (PMI), an economic activity index with insights from purchasing managers in the manufacturing sector, increased from 43.6 points in January to 51.7 points in February – above the neutral level of 50.

“While this is a welcome increase, it does need to be qualified by saying that business activity remains more subdued,” Absa said.

“Indeed, of the five subcomponents of the PMI, only suppliers’ performance is above 50 – although, encouragingly, new sales orders are almost there.”

“It is also useful to highlight that the survey tracks month-on-month movements, so with the January PMI being so weak, a slight uptick in February would have resulted in a considerable increase in the indices. Business conditions can still be more challenging than the long-term average experience.”

The business activity index recorded a solid increase from 37.1 in January to 48.6 in February.

However, the average for the first two months of Q1 2024 is below that seen in Q4 2023 and the 50-point mark.

This means that the sector may record a slight contraction in Q1 following marginal growth in Q4.

That said, respondents were more upbeat about exports, with the index rising from 37.2 to 49.9.

Absa said that this could signal that some congestion at the nation’s ports is starting to ease.

The inventories index also improved, possibly due to improvements at the ports or producers finding other ways to receive their input products.

The expected business conditions index also increased once more, with expected conditions rising from the recent low point of 41 in November 2023 to 59.5.

There was also a consecutive uptick in purchasing prices, with the index points now 10 points above the Q4-average. The index, like the supplier deliveries index, is inverted, so any increases reflect a negative for purchasing managers.

The rand exchange rate weakened in February, which pushed up the costs of imported inputs and materials.

“Should these high(er) purchasing price index readings be sustained, there might be some upside risk to the factory gate inflation outlook,” Absa said.

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